How will $4.7B in federal funds and a trade deal with Mexico help the food industry?

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Dive Brief:

The Trump administration announced Monday it would make $4.7 billion in payments to corn, wheat and cotton growers, as well as pork and dairy producers, to offset losses from a potential trade war. The majority of the payments —about $3.6 billion— will go to soybean growers. On a Monday conference call announcing the payments, U.S. Department of Agriculture officials said they will decide whether to issue another wave of payments by December.

Also on Monday, the U.S. and Mexico struck a bilateral trade deal, which Trump said he would like to replace the North American Free Trade Agreement. In describing the deal, which has not been signed by NAFTA signatory Canada, Trump said Mexican officials promised they would start buying U.S. farm product when the deal is signed, according to CNBC.

Agriculture Secretary Sonny Perdue said on the conference call that the U.S.-Mexico trade agreement improves NAFTA to allow U.S. agricultural producers to be treated more fairly and the USDA payments will help in the short term. “It’s important to note all of this could go away tomorrow, if China and the other nations simply correct their behavior. But in the meantime, the programs we are announcing today buys time for the president to strike long-lasting trade deals to benefit our entire economy,” he said.

Dive Insight:

On Monday, the food business got two pieces of positive news. Part of the $12 billion in short-term emergency funds available to help farmers hit by retaliatory tariffs that was promised in July is on its way. And a new trade deal with Mexico, which does not appear to have many adverse impacts to farmers and industry, may be close to ratification.

"Today’s aid announcement gives us some breathing room, but it will keep many of us going only a few months more," American Farm Bureau Federation President Zippy Duvall said in a statement. "If we’re going to turn our farm economy around for the long-term, we need to open more export markets with fair trade deals, and the sooner, the better.”

USDA will also spend $1.2 billion to purchase several commodities, including apples and almonds, to help bump up prices. Pork, which has a surplus and is the target of tariffs, willbe the largest beneficiary of that buy back, with a planned purchase worth $558 million. And of the $4.7 million direct payments, Pork will get the second-highest amount at $290 million.

Undersecretary for Marketing and Regulatory Programs Greg Ibach said on a call to press Monday that the USDA identified products and distributed payments based on who “took the brunt of those tariffs.” But the National Association of Wheat Growers said the package does not do justice for the harm to farmers.

“Farm income is down, and rural America is enduring a prolonged economic downturn,” the association said in a statement. “This relief package shows that the administration isn’t grasping the tough conditions being faced by farmers. The long-term solution is to end the trade war.”

Mizuho Restaurant and Proteins analyst Jeremy Scott said in a statement emailed to Food Dive that the subsidies in the aid package appear to favor farmers that are affected by the China trade tensions — predominantly pork, soy and dairy — which “suggests the administration is gearing up for a longer trade fight with China.”

What can make a long-term difference for the agriculture and food industries are trade deals, but it is unclear whether the new agreement with Mexico will make an impact. Details aren't yet available, but the major focus seems to be the automobile industry. As of Monday, the deal keeps the steel and aluminum tariffs that are already in place, but does stipulate that a certain amount of steel and aluminum must come from North America, according to CNBC. That could impact CPG companies that use aluminum for packaging, but it’s important to note the deal isn’t final yet.

A lot could happen between now and when the new trade deal is signed. Canada, the trade pact’s other member, may get involved in a final agreement. But Trump is unpredictable and negotiations on NAFTA have been ongoing for months, so what provisions are ultimately put into place are still up in the air. The food industry is dependent on imports, and a study from A.T. Kearney found that a NAFTA reversal would have the biggest impact on food and beverage. If agricultural trade stays largely the same between the U.S. and Mexico in a new agreement, it may reduce at least a small amount of uncertainty.